The position indicated above clearly suggests that there was a significant surge of dissatisfaction expressed towards a number of institutions and the decisions of their boards, however when examined across the market as a whole, it appears that there may be a different story to tell. It is argued that whilst reported heavily by the press there may not have been such a mass rebellion as first thought. Studies have suggested that there were only 10 companies in the FTSE 100 that experienced ‘significant opposition’173 to their remuneration report. This has been strengthened by
the fact that, outside the already given examples, there was a significant drop in dissatisfaction levels from those seen in the previous year. Therefore it may be suggested that the examples shown above were in fact isolated incidents, that were not entirely related to pay in isolation, but instead each company had a number of contributing factors which led to shareholder dissatisfaction beyond simply remuneration levels.
Indeed, various studies of what happened during the spring appear to reach very similar conclusions, and it would perhaps appear that the Spring’s effect was more significant as a newspaper headline than to the sector as a whole. One study has shown that out of a sample of just over 300 annual meetings, the average vote against pay reports was 7.64% in the first six months of 2012, compared to 6.1% in the same period a year earlier.174 Reinforcing this idea Fair Pensions subsequently
concluded that while the remuneration defeats had had a ‘significant impact’, they did not ‘represent a sea change in investor attitudes either to stewardship generally or remuneration practice in particular’.175 Supporting this Manifest concluded that there was an increase in the
average level of dissent registered in all explicit votes on remuneration to 11.7%, which was an increase on the previous year of 9.6%. What was more interesting perhaps was that whilst an increase these figures were significantly below the dissent levels of 16% and 12.4% seen in 2002 and 2003 respectively.176
172 Comment made by a Mr John Farmer reported at Julia Kollewe (n 169).
173 Significant opposition is defined as remuneration report resolutions that experienced greater than 20% of votes against or abstaining. KPMG (n 126) 8.
174 The Observer ‘A year after the shareholder spring, the green shoots of rebellion are withering’ The Observer (10 March 2013).
175 ibid. 176 ibid.
195 | P a g e
Has Greater Disclosure and the Shareholder Spring Had Any Lasting Effect?
It is very difficult for the moment to analyse whether these provisions have had any lasting effect, however using anecdotal evidence it would appear that there may be a serious shift in culture towards stronger corporate controls. It appears that in general bonuses are falling.177 In 2014 nearlya quarter of FTSE 100 companies froze the salary of their chief executive and that pay increases, at less than 3%, have been largely been in line with the rest of the workforce. Companies now believe that their remuneration committee's pay decisions are more focused on fairness between executives and the wider workforce because of new disclosure rules.178 This is interesting to note as prior to
this, in the eight years leading up to the GFC pay increases for executive directors routinely
outperformed those of the general workforce, and were typically 6% to 7% per annum. So much so it led one commentator to note:
‘The 2014 annual meeting season is shaping up to be another year of restraint. Despite fears that executive pay inflation would take off again as the economy recovers, this doesn't seem to be the case. Executives are seeing only modest salary increases and bonuses continue to fall. Remuneration committees are approaching any increase in pay-outs with caution to ensure they accurately reflect performance and satisfy shareholders.’ 179
Combining disclosure with the ability of the media and shareholders in general to apply social pressure, it is argued that even though shareholders do not have formal controlling powers over directors, the ability to voice their dissatisfaction could result in significant changes in corporate decision making, therefore improving corporate governance. It has been shown previously that media pressure can aid shareholders in applying pressure on directors to curb excessive decision making.180 Dyke and Zingales were studying the media pressure in relation to environmental decision
making as opposed to director remuneration, but these results would theoretically apply just as well to the voting on remuneration policy.
It is purported that the increased disclosure requirements have allowed shareholders to place sufficient pressure on directors to ensure that they modify their behaviour, and as such has offered a positive aid to corporate governance, but alone disclosure will not be a fix all. Whilst it is too soon to
177 Larry Elliot, ‘Executive bonuses fall for third year’ The Guardian (London, 1 April 2014).
178 PriceWaterhouseCoopers, ‘2013: A year of restraint for executive pay’ (January 2013) 4 accessed at
http://pdf.pwc.co.uk/executive-pay-2013-a-year-for-restraint.pdf [accessed on 4 September 2014]. 179 ibid.
180 Alexander Dyke and Luigi Zingales, ‘The Corporate Governance Role of the Media.’ (2002) Working paper, Harvard Businesss School and the University of Chicago accessed at
196 | P a g e disseminate whether report voting has any lasting impact one thing that is sure is that there has been significant legislative responses to the Spring of 2012. These responses have come in the form of legal sanctions on remuneration, the next part of the chapter will analyse these sanctions and their viability as a vehicle for good corporate governance.
2.
Legal Interventions in Remuneration Structures
The genesis of the latest attempt to regulate managerial reward is a direct response to the recent financial crisis and more recently the aforementioned ‘Shareholder Spring’ in 2012. As already mentioned the majority of the dissent was linked to what appeared to be overly generousmanagerial remuneration packages. During the Spring shareholders did not have a binding vote on remuneration, but instead were given an advisory vote on general remuneration policy. The question therefore that needs to be asked is whether shareholders or the state should be able to legally interfere with the setting of remuneration policy in general or individual remuneration packages?
These two avenues are significantly different and will be approached separately; firstly the chapter will investigate whether Shareholders should be given a binding vote on remuneration policies and individual pay structures. The piece will then proceed by analysing the reasoning behind and viability of governmental interferences restricting levels and types of pay.